Crandal Dockworks Is Undergoing a Major Expansion

Multiple Choice

Crandal Dockworks is undergoing a major expansion.The expansion will be financed by issuing new 15-year,$1,000 par,9% annual coupon bonds.The market price of the bonds is $1,070 each.Crandal's flotation expense on the new bonds will be $50 per bond.Crandal's marginal tax rate is 35%.What is the pre-tax cost of debt for the newly-issued bonds?

A) 8.76%
B) 8.12%
C) 7.49%
D) 10.25%